When the Chicago real estate market is in high gear like it has been since early 2012, it's common for Sellers to initially price less aggressively at the beginning of the cycle and over aggressively as the cycle matures, just prior to flattening out or declining. Early in the cycle, Sellers are pleased with quick sales at or near full list price. As the market strengthens, bidding typically becomes more aggressive and properties will frequently sell over list price. Pricing expectations for Sellers and Buyers are continually reset higher as the cycle matures.
Like any other asset, your real estate is worth what someone else is willing to pay for it. The list price is simply guidance for Buyers. A reasonable Seller will base the list price on recent comparable sales, often times dating back 3-6 months. In an advancing market, using comparable sales that date back 6 months might cause you to undercut your list price and potentially leave money on the table. The opposite is true in a declining market where Sellers can get left with unsalable properties that are priced too high.
As we enter 2014, we are likely well into the peak of the current cycle and many experts expect the real estate market will slow significantly over the coming year. Core neighborhoods in Chicago have benefited from substantial appreciation over the past 12-18 months. Asset classes like multifamily, investment property and land for development have been market leaders and should continue to be over the next 12 months.
The run isn't over and we'll probably see further price appreciation this year, but the writing is on the wall. 10% + year over year price appreciation isn't sustainable, just ask anyone who got caught up in the last real estate bubble. So, for would be Sellers in 2014, how should you price your property to cast the widest net possible and get the most attention from Buyers?
Here are 3 pricing tips for Sellers as the current cycle of high appreciation begins to slow.
1. Keep the Price Compelling
I mentioned before that the list price is merely guidance for Buyers. When establishing the value of your property, you're going to be comparing it to similar properties and you'll see they often sell in an identifiable range, once you know what to look for. For example, 5 very comparable properties have sold in the last six months between $600,000- $635,000.
It's easy to look at this range and rationalize that it makes sense to price at $635,000 or higher since that's what the market is telling you it will pay. Ideally though, pricing in the low to mid end of this range will attract more potential Buyers which should lead to more offers. If the market is still willing to pay $635K or more, you'll see offers in that range. Buyers will chase value and continually pay up to secure an opportunity before someone else steps in.
A real estate agent typically search for properties within a price range established by the client. Using the example above, if your potential Buyers are looking in a range of $600,000 - $650,000 and you decide to price your property just 3% over the highest recent sale ($635,000 + 3% = $654,050), you could potentially miss out on a significant number of Buyers.
2. Keep the Price Simple
There's no reason to get technical or fancy with your list price. Again, the list price is used for guidance. If comparable properties are selling within a $25,000 range, price your property within that range to attract the most Buyers possible and use a number that ends in a 4 or a 9 (ex: $624,000 or $629,000). Coming up with a random number like $651, 976 means nothing and it can be somewhat confusing. It might stand out from the crowd for a second but it's not standing out for the right reasons, especially if it's higher than recent sales.
3. Go In With a Pricing Strategy
The goal is always to set a list price that attracts the most Buyers and nets you the maximum sale price. But what if the market slows substantially after you list your property? Buyers operate in a herd like mentality without anyone at the helm. When you list your property for sale, you have 2-3 weeks before everyone who is active in the market has looked over the listing or requested a showing. This is your best opportunity to make an impact.
After the first 2-3 weeks on the market, the majority of Buyers who show an interest will be new entrants in the market. At this point, every new potential Buyer is going to wonder why no one has purchased the property yet and the conclusion is usually that the asking price is too high. Get ready for less than impressive offers.
If you priced higher than recent sales, this outcome shouldn't come as a surprise. If you priced fairly and you still don't receive any offers, it could be a function of the market. In either case, it's time for plan B.
Ideally, your real estate agent already discussed a pricing strategy with you, so adjusting your list price won't come as a shock and major disappointment. Between 20-30 days on the market, analyze the Buyer traffic, review comments from showings and make a decisive pricing decision before too much time goes by. If you planned to lower the list price by 2-3% after 30 days with no offers, don't hesitate to act. When the market is slowing or beginning to turn from a Seller's market to a neutral or a Buyer's market, you should do everything possible to get ahead of the current trend if you're committed to a sale.
Photo credit: allison